Question

Problem 06.004 Annual Worth and Capital Recovery Calculations A delivery car had a first cost of $32,000, an annual operating cost of $13,000, and an estimated $7000 salvage value after its 6-year life. Due to an economic slowdown, the car will be retained for only 3 years and must be sold now as a used vehicle. At an interest rate of 8% per year, what must the market value of the used vehicle be in order for its AW value to be the same as the AW if it had been kept for its full life cycle? The market value of the used vehicle is determined to be $

Answer 1

feast cost - 32.000 Annieal operating cost = 13,000 Salvage ralue 7000 Life 6 years Interest Rate - 8% If the car is retren for 3 years only What should be the market value (salvage value) So that Aw value to be same as the Aw 4 kept for its full life. Annual worth of Kept for 6 years AW= 32,000 (ALP, 8%, 6) + 13,000 - 7000 CAE846) AW= 32,000 (0. 21632)+13000 - 2000 (0.13632) AW: 18,968 where. We need to calculate the salvage value at 3rd year, so that AW at 6 year life = AW at 3 year life 18,968 = 32000 (442873}_+13,000 __- Siv (AF873) 18,968 =_32000 (0.38803 ) + 13 ovo -Sv (0.30803 ) 18.968 = 12,417 713.000 - SVCO. 30803) 18,968 = 25,417 - Sv ( 0. 30803) SV 030803) = 25,412-14,968. sv (0.30803) = 6449 Sv= 6449/ 0.30503 SV= 20,936 The market value of used Vehicle is determined to be $20,936